But how soon will that future be a reality? With more players steadily entering the game (see our timeline), consumers might find it more compelling – and affordable – in the coming year to try making a payment via a wearable accessory. We asked the experts to peer into 2017.
Where we are now
While there’s lots of buzz about wearable payments, the field is still embryonic.
“The penetration of the devices is not so high right now,” says Olcay Cat, assistant general manager of product at card technology services company Cardtek.
One of the biggest players, Apple Pay (which can be used via the Apple Watch), has seen lukewarm adoption with only 1 in 20 users utilizing it repeatedly more than year after launch.
Part of the problem is that not all retail locations have the technology underpinning wearable payments – near field communication (aka NFC). It’s the same tap-and-go technology that enables mobile wallets like Apple Pay and Android Pay, as well as contactless cards.
NFC’s presence is growing in the U.S. Aite Group estimates 3.15 million merchant locations will have NFC-capable terminals by the end of 2017, up from 1.18 million in 2016.
But that doesn’t necessarily mean immediate, widespread appeal for wearables. Why? Consumers have other options, notes Samuel Murrant, senior analyst with Verdict Financial, a marketing research and analysis firm that specializes, in part, on consumer payments.
“You have cards, mobile phones and wearables,” he says. “And most people will generally already have access to the first two.”
What needs to happen?
The success of wearable payments hinges on a confluence of factors.
1. They have to beat the old-fashioned wallet
For many consumers, the trusted billfold serves just fine. So wearable-payment devices need to find a way to allow consumers to load digital versions of their payment cards, ID, transit cards and everything else in their wallets.
“The most important function of wearable payments devices is that you can use a single device for everything,” Cat says. “Your transportation card, your loyalty cards, your debit and credit cards.”
And that’s something new players in the market will have to tackle. To that end, Cardtek has introduced what it’s calling its Digital Enablement Platform, which will allow wearable industry players to craft their own payment solutions to accommodate access cards, transit tickets, payment cards and more.
Wearables do have one immediate advantage over the old wallet – security – even though they’re so new that consumers may not fully trust them yet, Murrant says. Many wearables make use of tokenization technology, meaning they don’t store sensitive card data like expiration date, account number and CVV, says Lutfiye Bilgin, a product manager at Cardtek. Even if a lost physical card can’t be used at a store (if the cashier asks for ID, for example), the data gleaned from it can be used online, Bilgin says.
2. They need to do something besides make payments
As with any technology that does something an existing thing already does, “there are always a few early adopters who are excited about using it right away, who just want to use whatever’s new,” Murrant says.
But for most consumers, wearable devices capable of payments and nothing else “won’t be very popular at the beginning,” Cat says.
In fact, Verdict Financial found in a 2015 survey that offering wearable-payment technology in tandem with other features was key to getting consumers to try it (65 percent of those surveyed cited having a range of features available as a selling point).
So, in the beginning, wearable payments will have to piggy-back on something consumers already use – fitness trackers for example. If you already have one on your wrist tracking your steps and heart rate, you might use it to make payments if it can do that too.
True, the phone is already something you carry, and it can also make payments.
“But if you’re on a run, you probably don’t want to bring your phone,” Murrant says. “With a fitness tracker, you can buy a bottle of water or go to a café and buy a snack.”
When consumers begin to see the value of wearable payments, stand-alone, payment-only rings and bracelets might take off, Cat says. But, for now, consumers “will be happier to have payment functions on the devices they’re using already,” says Cat.
3. They need to get more affordable
Consumers get cards (perfectly capable of making payments) from their banks for free.
If you are intrigued enough to try wearable payments, the most accessible, broadly functional options right now are the Gear S2 Watch (with Samsung Pay) and the Apple Watch (with Apple Pay).
The Gear S2 will set you back around $250. Apple Watches start at roughly the same amount, and you’ll also need a later-model iPhone to initially set up Apple Pay on the watch.
“One of the issues with wearable payments in general now is a cost issue,” Murrant says. Verdict Financial found that cost was the second-most important driver in wearable-payments adoption, with more than half of those surveyed citing it as an issue.
Some fitness trackers retail for significantly less than smartwatches, and payments-capable ones are coming down the pike (see our timeline). That, and the convenience factors mentioned in point two above, could get more budget-conscious consumers onboard.
Forecast for 2017?
2017, Cat says, will be “an initiation year for wearable payments.” New players will have to contend with the already-established Apple Watch, but, as Cat notes, Apple Pay’s platform is closed to third parties who might wish to innovate with other devices. Innovation has perks for the fashion-savvy as well.
“Once manufacturers begin [expanding options], it can be an accessory, something you wear in your daily life that you’ll also be able to use to make payments,” Cat says.
Expanding NFC technology infrastructure will also nurture the growth of wearables, which use the same technology. So, as mobile wallets and even bank-issued contactless cards spur merchants to update their payment consoles, wearable payments will flourish as well.
“Wearables have a bit of an advantage over contactless when it was the new thing because it piggy-backs on that infrastructure,” Murrant says.
On the other hand, sluggish merchant adoption of NFC could stifle the growth of wearable payments.
“Without those terminals, there’s not much of a reason for a consumer to pick up a wearable payment device,” says Murrant.
No matter how much wearable payments grow, however, Murrant doesn’t immediately see a world where paying by bracelet, ring or watch is the norm. Mobile phones, cards and even cash will still be used. Wearables will be an option, perhaps a strong one, but always just “another option,” Murrant says.
“I expect companies are testing the waters to see what sticks, what will appeal,” he says. “And that will probably continue into 2017.”